Why comparisons to previous depressions are misleading.
Posted: Fri Oct 10, 2008 12:22 pmWe've seen a lot of end-of-the-world banter on the news lately, and comparisons to previous depressions. So I wanted to give people some positive news.
Even if we have a prolonged depression, it won't actually be bad enough to compare to previous depressions.
Let's consider what happens during a depression. People lose equity, economic activity falters, and in general people experience a lower standard of living than they did prior to or after the depression. Alright, fine; just don't forget that the course of human history has generally been an ascent towards higher standards of living for more people. Now, there is no way to quantify how much lower standard of living will go during this depression, but let's guess 20 years (that's what I've heard happened during the Great Depression).
Twenty years doesn't sound so bad. Most families had two cars, but maybe one was an older car. Most families had a home, even if it was nearly 700 sq ft smaller than the average home today. People could still eat out, but it was probably closer to a couple times a month than a couple times a week. The typical family had only one TV then, and maybe a Nintendo and VCR. Most had no computer of course. And nobody could have imagined giving a cell phone and ipod to every child over the age of 10.
The point is, this is probably closer to what we have to look forward to than bread lines and hover blankets. And that would be something akin to worst-case scenario.
Even if we have a prolonged depression, it won't actually be bad enough to compare to previous depressions.
Let's consider what happens during a depression. People lose equity, economic activity falters, and in general people experience a lower standard of living than they did prior to or after the depression. Alright, fine; just don't forget that the course of human history has generally been an ascent towards higher standards of living for more people. Now, there is no way to quantify how much lower standard of living will go during this depression, but let's guess 20 years (that's what I've heard happened during the Great Depression).
Twenty years doesn't sound so bad. Most families had two cars, but maybe one was an older car. Most families had a home, even if it was nearly 700 sq ft smaller than the average home today. People could still eat out, but it was probably closer to a couple times a month than a couple times a week. The typical family had only one TV then, and maybe a Nintendo and VCR. Most had no computer of course. And nobody could have imagined giving a cell phone and ipod to every child over the age of 10.
The point is, this is probably closer to what we have to look forward to than bread lines and hover blankets. And that would be something akin to worst-case scenario.